OIL PRICES
169
transport sector will increase in contrast to the reduction of energy
consumption in the other sectors.
Crude oil prices behave much as any other commodity with
wide price swings in times of shortage or oversupply. The crude oil
price cycle may extend over several years responding to changes
in demand as well as OPEC and non-OPEC supply. However, in
the United States, the price of crude oil has been heavily regulated
through production or price controls throughout much of the 20th
century.
The oil industry in the United States has been subjected to varying degrees of price controls since August 1971, when general price
controls were levied on the entire US Economy. As controls were
phased-out in other industries, more stringent price regulations
were imposed on the oil industry in response to the October 1973
oil embargo and the subsequent quadrupling of world oil prices
(Helbling and Turley, 1975).
The oil price control program is directed at cushioning the domestic impact of sharply higher external oil prices. In this respect, the
controls effort can be regarded as successful because the effective
domestic price for petroleum remains, in fact, below world market
prices. Economic analysis, however, indicates that the controls will
(1) become ineffective, over time, with respect to the above stated
intention and (2) will enhance the ability of external suppliers to
manipulate prices.
Using economic theory as a foundation, the eventual effects of
controls on domestic production, imports, and the domestic price
of oil are derived. In this regard, two of the more popular concepts are that decontrol will result in (1) higher domestic petroleum prices and (2) increased domestic production and reduced
imports?
United States oil refiners currently process about 18 million
barrels per day. Of this total, approximately 12 million barrels per
day are imported from other countries. The United States did not
always rely to such an extent on external oil supplies. In the mid1960s, oil imports represented only 20% of total U. S. Consumption.
In fact, as late as 1971, import quotas on petroleum products
existed in order to prevent relatively cheap foreign oil from placing
domestic oil producers at a competitive disadvantage.
In the months of July until December 31 2008, oil prices fell from
$147 a barrel to less than $40 per barrel. However, since 2003, even
in a strong upward trend of oil prices, there have been several dips
169
transport sector will increase in contrast to the reduction of energy
consumption in the other sectors.
Crude oil prices behave much as any other commodity with
wide price swings in times of shortage or oversupply. The crude oil
price cycle may extend over several years responding to changes
in demand as well as OPEC and non-OPEC supply. However, in
the United States, the price of crude oil has been heavily regulated
through production or price controls throughout much of the 20th
century.
The oil industry in the United States has been subjected to varying degrees of price controls since August 1971, when general price
controls were levied on the entire US Economy. As controls were
phased-out in other industries, more stringent price regulations
were imposed on the oil industry in response to the October 1973
oil embargo and the subsequent quadrupling of world oil prices
(Helbling and Turley, 1975).
The oil price control program is directed at cushioning the domestic impact of sharply higher external oil prices. In this respect, the
controls effort can be regarded as successful because the effective
domestic price for petroleum remains, in fact, below world market
prices. Economic analysis, however, indicates that the controls will
(1) become ineffective, over time, with respect to the above stated
intention and (2) will enhance the ability of external suppliers to
manipulate prices.
Using economic theory as a foundation, the eventual effects of
controls on domestic production, imports, and the domestic price
of oil are derived. In this regard, two of the more popular concepts are that decontrol will result in (1) higher domestic petroleum prices and (2) increased domestic production and reduced
imports?
United States oil refiners currently process about 18 million
barrels per day. Of this total, approximately 12 million barrels per
day are imported from other countries. The United States did not
always rely to such an extent on external oil supplies. In the mid1960s, oil imports represented only 20% of total U. S. Consumption.
In fact, as late as 1971, import quotas on petroleum products
existed in order to prevent relatively cheap foreign oil from placing
domestic oil producers at a competitive disadvantage.
In the months of July until December 31 2008, oil prices fell from
$147 a barrel to less than $40 per barrel. However, since 2003, even
in a strong upward trend of oil prices, there have been several dips